C-Rad's (STO:CRAD B) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern C-Rad AB (publ)'s (STO:CRAD B) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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A Closer Look At C-Rad's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to September 2025, C-Rad recorded an accrual ratio of -0.23. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of kr66m in the last year, which was a lot more than its statutory profit of kr23.2m. C-Rad's free cash flow improved over the last year, which is generally good to see.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On C-Rad's Profit Performance

As we discussed above, C-Rad's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that C-Rad's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 61% per year over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing C-Rad at this point in time. Case in point: We've spotted 1 warning sign for C-Rad you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of C-Rad's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.